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HSAs: Taking health care into your company's hands

Health savings accounts are about choice. Choosing to offer a health savings account, or HSA, provides employers help in controlling costs and improving employee health and productivity. By participating, employees choose greater responsibility for their health care. It is also a great way for employees to save money -- both for today, as they cope with rising costs, and for the future, as they face retirement.

To make such choices even easier, Ceridian Benefits Services is now offering this productivity-enhancing benefit along with its full suite of other employee benefits services.

"The timing is perfect," says Ceridian product manager Matt Lupori, "as momentum strengthens for greater consumer engagement in health care.

"With our introduction of HSAs, clients now have a wider variety of Ceridian tax-advantaged options to help them implement a consumer-driven health care arrangement," he adds.

Health savings accounts are, in fact, considered the linchpin of consumer-directed health care.

According to an April 2008 report by America's Health Insurance Plans, a health insurance industry group, more than 6.1 million Americans are covered by HSAs. That number is expected to skyrocket, with some studies showing an 18 percent increase per quarter.

HSAs are individual spending accounts that permit saving for qualified medical and retiree health expenses on a tax-free basis. Like flexible spending accounts (FSAs), HSAs provide employees with the ability to save an average of 30 percent in taxes on eligible expenses. And like health reimbursement arrangements (HRAs), they present an opportunity to save for future care costs.

But they have characteristics unique from traditional health FSAs and HRAs, as well.

The most significant, perhaps, is that eligibility to contribute to an HSA is contingent on participation in a high-deductible health plan (HDHP). A health plan does not qualify as an HDHP unless it meets the annual deductible and out-of-pocket maximum limits set by the Internal Revenue Service each year.

The working premise behind HSAs is that when consumers stop paying additional premiums to get copays and low deductibles, they save substantially -- 30 to 70 percent -- on insurance premiums. With and HAS, employees can put those savings into a tax-advantaged account to pay current expenses and save for future expenses, including retirement. With good health, money accumulates quickly over time. This puts consumers in charge of their own health care dollars and provides them with a tangible incentive to stay healthy.

HSA Q&A with Matt Lupori
Matt Lupori answers general questions shared by HR managers whose companies are considering taking advantage of offering this valuable benefit:

Ceridian Connection: We're hearing a lot about HSAs. What is so special about them?
Health savings accounts were created in response to the rising cost of health care. These are tax-favored accounts that employers can offer to their employees to help pay for health care expenses -- from dental and vision care to medical procedures to prescriptions and over-the-counter medications. They are special in that they combine the pretax treatment of a health FSA, the portability, investment and rollover characteristics of a 401(k) plan, and tax-free distributions.

At the same time, they give employees greater responsibility for their own health care purchasing decisions, which should make them better health care consumers. From a purely economic standpoint, that should help drive down health costs within an organization.

When you add in that employers typically save 8 to 10 percent on payroll taxes for all deductions taken from the HSA plan, it is really a win-win for both parties. Companies can take health care matters into their own hands and save money.

But are they really "revolutionary," as they have been called?
HSAs are the first benefit that allows employees to accumulate and spend money tax free over their lifetimes, as long as the funds are used for qualified medical expenses and coverage. Employees can take advantage of tremendous tax savings, build a reserve for current and future health care expenses, and enjoy the security of health care coverage that protects them and their families.

Savvy consumers might say that is revolutionary.

Why is Ceridian introducing HSAs to clients at this time?
Consumer-directed health plans accompanied by HSAs are relatively new additions to employers' health benefits offerings. But in the last two years, the pace has dramatically increased because of skyrocketing health care costs. We think more employers will want to offer these products in the future as momentum strengthens for consumer-directed health care and health reform. Ceridian's depth of history and experience with benefits administration provides them with an easy, reliable way to do so.

As a business owner, why would I want to offer HSAs?
HSAs make sense economically because employers' payments are excluded from taxes. And because employers could save money on lower premiums for plans with higher deductibles and coinsurance rates, they could pass on those savings to employees, whether in the form of higher wages or additional benefits.

Generally speaking, large employers are making a real movement toward an overall strategy to shift more responsibility for health care to employees, but at the same time offer benefits that are perceived as valuable to employees. Smaller employers with low-wage workforces are offering HSAs as an embellishment to a high-deductible plan.

Do we know what kinds of employees use HSAs?
Enrollment in these accounts continues to grow, especially among employees less than 35 years old and employees more than 55 years old. The younger employees perceive themselves as healthy and expect few expenses, so they anticipate saving money with the high-deductible health plan. Older workers value the HSA as a retirement investment vehicle. They can select from a variety of investment options that earn competitive interest rates, so their unused funds grow over time.

Both groups appreciate the fact that they can start, stop, increase or decrease their elections at any time and that pretax HSA contributions may come from the individual, the employer or anyone else.

Because of this, HSAs can be a great addition to a benefits program, helping attract and retain the type of high performing employees today's businesses value.

What are the advantages of choosing Ceridian for HSA administration?
For everyone, this is a relatively new benefit. But Ceridian brings over 75 years of experience providing human resources management to thousands of companies worldwide. We designed a unique Web-based platform that increases access for employees to self-service features, provides greater benefit card capabilities and brings more efficient reporting and claims processing.

Bottom line: We design our clients' plans so that they are easy to administer, communicate well with participants and are backed by very high levels of support.

Are there factors that can increase HSA usage?
Ceridian has found that a single, comprehensive enrollment process that pairs the HSA with online enrollment technologies helps greatly, as well as comprehensive communication initiatives.

Also, while a business is not required to make a contribution to an employee's HSA, it helps increase usage. Studies are finding that, on average, employers contribute 15 to 20 percent of the total amount in an HSA. Some firms wait until the end of the fiscal year, making contributions to employees' HSAs to reduce taxable income.

What lies ahead for HSAs?
Although HSAs are expected to change the face of benefits administration, they will not eliminate the use of HRAs and FSAs. If anything, the future may see employers taking the best of all three accounts.

Also, regardless what happens in the upcoming general election in November, HSAs represent choice and flexibility for the individual, and that is something everyone wants. As consumers, we want greater control over how we spend our money for health care.

Now that we have a means to gain that control, Ceridian is asking, How do we deliver the vast information and tools employees need to become even better purchasers of health services? You can expect an increase in health care information and deeper support services from Ceridian over the next few years as we answer this question and help lead our clients into the new and promising realm of consumer-directed care.